Introduction to RFID Inventory Management in Retail

Radio Frequency Identification - RFID is an established data-carrying and automatic identification technology used throughout industry, and in the retail sector, has long been touted as the Holy Grail of Inventory Management. I can remember a conversation I had with one of the IT Directors of Tesco who said to me '..whichever Retailer cracks RFID first, wins. Period'. Dramatic words indeed.

Within Retail, think of RFID as an Intelligent barcode. Intelligent because it not only identifies the product, but it uniquely identifies the product. ie I'm not just a 300g tin of beans, I'm 300g tin of beans number 54167. It can do this because data relating to the specific item is stored on the RFID tag which is attached to the item. Like a bar code, a tag is a data carrier. A bar code carries data in a visible symbol and is read by a bar code scanner using optical or infrared wavelengths. An RFID tag carries data programmed into a small computer chip and operates at a wide range of radio frequencies.

The tag is activated by radio waves emitted from an RFID reader. The reader communicates wirelessly with the tag across what is known as the air-interface. Once activated, the tag sends data stored in its memory relating to the item back to the reader.

The RFID readers vary in the range at which they can read the RFID tags. This starts from the tap and go type readers which operate at the 0 - 1cm range, think TFL Oyster card, where you tap the card on to a reader (Interestingly such system are called contactless, despite the need to touch them to the reader). This area of RFID isn't really suitable for Inventory Management and is being explored more as a quick payment method.

Long range RFID scanners can pick up tags at range's up to 200m, and its these long and medium range scanners that open up the opportunity within warehouses and store backrooms for automatic inventory counting, goods in scanning etc. Imagine being able to take in a delivery from a supplier and automatically know each individual product that is on the pallet.

Aside from the infrastructure and setup challenges associated with an RFID solution, is the challenge of what to do with all that data. The increase in data volumes associated with a change in supply chain management from pallets to individual items is huge. I've worked at 4 out of the top 5 UK retailers and they all have enterprise datawarehouses measured in the 10's of Terabytes, driven by holding data mostly at SKU level. (Some of the data held will be at transaction level, which is almost individual item level, but the volumes of this typically range in the 0 - 5% of total space utilisation). To change the granularity to be at individual RFID rather than SKU is to scale that volume by a rough factor of 10,000. (based on 1000 stores and 10 incidences of each item per store).

The data challenge for RFID Inventory Management therefore becomes how to cope with a new level granularity, which systems need to use it, how they talk to other systems, how to cope with the increased network and storage requirements.

Corporate Social Responsibility and the economic downturn

Given the unstable nature of the world economy at the moment, how will the latest corporate trend, Corporate Social Responsibility, fair as companies tighten their belts and look to cut costs?

All major retailers have Corporate Social Responsibility (CSR) statements proudly displayed on their web sites, and being green and being seen to be green, is high up the agenda in all PR and Marketing departments. Retailers are fighting to have sector leading green credentials with the humble carrier bag thrust into the limelight, centre stage. Corporate Social Responsibility is not just about being green though, it's about promoting sustainability and one of the leading bodies to define standards for business sustainability, the Global Reporting Initiative, defines five areas where business needs to focus;

o Economic
o Environmental
o Human Rights
o Labour
o Product Responsibility

With the price of energy increasing all the time, it's easy to see that focusing effort on reducing your Carbon Footprint, is good business sense, as well as providing good PR material. The green movement has successfully persuaded companies that being green makes commercial sense. However being green is only a part of a companies CSR strategy, so as times get harder will we see a relaxing of the commitments made across the other key areas.

With sales weakening across the high street many retailers will be asking their supply chain to bear the costs of poor trade. Changing payments terms for suppliers and asking suppliers for extra discount are some of the ways retailers can put the squeeze on their suppliers. For suppliers though, struggling with their own increased energy costs, this additional pressure will be most unwelcome and for many, could push them close to the edge.

This doesn't strike me as a sustainable business strategy. Sure, your suppliers will need to bear some of the costs, but the sustainable way out of the downturn would be to work together. How sustainable can it be to destroy your supplier base?

Off-License 2.0

I've introduced my local off-license and it's over friendly owner, Pete, in my previous post about the impact that merchandising has on replenishment. Being a small shopkeeper, Pete only has limited capital to invest in the business, so it needs to be highly targeted to where it adds most value. Pete still uses a pricing gun and an old fashioned till. It's obvious that this costs him a lot in time and effort, but it's his own time and he likes doing it so he carries on, the benefit isn't worth the investment.

This might seem a little old fashioned but in another way Pete is on the cutting edge of off-license retailing. Pete has just introduced the concept of off-license 2.0, social network retailing in beers, wines, spirits and confectionary. I mentioned before that the real purpose of the shop is to engage customers in conversation and Pete has now taken this to the next step by installing sofa's in his shop, near the checkout, to extend the social interaction both to customers and non-customers. Regular customers can now come in for a sit down and a chat whether they are buying anything or not.

It's hard to work out the impact on trade that this will have. I'm sure that the regulars now become even more regular and will often be tempted into impulse purchases when they'd no intention of buying. For others,me included, I'm less impressed with the innovation. Before the checkout process used to take 5 minutes and was a necessary evil. Now of course this can be extended as other people can chip into the conversation. Maybe the two balance out.

The benefit to Pete though, of this investment, is huge. Now he can hold conversations whether there are customers in the shop or not, as there tends to be a steady stream of loafers willing to come in and sit down. It's not all about trade and numbers, there are other factors, often competing that contribute to a healthy and stable business. Larger retailers are trying to balance shareholders vs employees, or customers vs suppliers. Off license 2.0 might not have had a huge impact on trade but it's certainly improved some of Pete's other KPI's and therefore worth every penny.